(Bloomberg) – Singapore’s central bank has tightened monetary policy settings as stronger-than-expected domestic economic growth has allowed policymakers to continue to battle inflationary pressures.
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The Monetary Authority of Singapore, which uses the local dollar exchange rate as its main policy tool, has refocused the midpoint of the currency’s policy range back to its current level, according to a statement on Friday. This will allow the local currency to strengthen and, in turn, prevent global shocks from affecting local prices.
The Singapore dollar strengthened 0.5% to 1.4243 per US dollar after the MAS decision, which was only accurately predicted by four of 19 economists surveyed by Bloomberg. While all expected some sort of tightening, six saw an adjustment in the slope and nine expected the authority to employ both measures.
The MAS policy tightening – the fifth since October 2021 – came as inflation data showed no sign of a spike in price increases, although the latest gross domestic product figures showed the economy had returned to growth in the third quarter. The decision also puts the Federal Reserve on notice, which is under pressure to stick to outsized hikes next month after the latest US consumer price data showed the basic measure hit a peak. in four decades.
The MAS had to weigh the continued effects of a stronger dollar and imported inflation against the darkening outlook for the global economy that would incentivize a shift to more growth-oriented and less restrictive financial conditions.
“Today’s decision to refocus only likely attempts to balance downside growth risks with upside inflation risks,” said Khoon Goh, head of Asia research at Australia. & New Zealand Banking Group in Singapore. “It is too early to say that this is the end of the tightening cycle. If inflation in Singapore continues to surprise on the upside, MAS will still have to react, but the hurdle to further refocusing is now very high.
The Singapore dollar was one of the least affected currencies in Asia, depreciating 5.7% against the greenback from the start of the year to the end of Thursday, while most major currencies in the region have fallen by double digits over the same period. Singapore officials, including the MAS, have forecast inflation to remain high this year and “to subside more noticeably in the second half of 2023.”
The central bank maintained its growth forecast of 3% to 4% for 2022, while bringing inflation figures back to the top of their previously estimated ranges. As a result, core inflation should average 4% this year and headline inflation 6%.
Officials gathered in Washington this week for meetings hosted by the International Monetary Fund and the World Bank have painted a grimmer picture of the global outlook, with IMF Managing Director Kristalina Georgieva predicting that a third of the global economy will experience a recession this year and next.
(Updates with details throughout)
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